thank CONSULTATION PAPER P009 - 2019 May 2019 Regulating Merchant Banks under the Banking Act Monetary Authority Of Singapore 1 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Contents 1 Preface ........................................................................................................... 3 2 Consolidating Regulation of Merchant Banks under the BA ......................... 5 3 Licensing Merchant Banks under the BA ....................................................... 6 4 Annex A: List of Questions ............................................................................. 7 5 Annex B: Relevant Sections in the BA for Merchant Banks ........................... 8 6 Annex C: Proposed Amendments to the BA ................................................ 10 Monetary Authority of Singapore 2 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 1 Preface 1.1 In June 2015, MAS announced that it will remove the divide between the Domestic Banking Unit (DBU) and the Asian Currency Unit (ACU). Banks and merchant banks (MBs) will no longer need to maintain two separate accounting units with effect from 1 October 2020.1 1.2 MAS subsequently conducted a closed consultation with MBs in February 2019, on the proposed consequential amendments to MBs’ regulatory requirements following the removal of the DBU-ACU divide. MAS thanks all respondents for their comments. We are considering the feedback received and will incorporate them into the relevant provisions, where appropriate. 1.3 In addition, MAS proposes to consolidate the regulation of MBs under the Banking Act (BA) upon removal of the DBU-ACU divide. MAS also proposes to move MBs to a licensing regime from the current approval framework under the Monetary Authority of Singapore Act (MAS Act). The draft legislative amendments to effect these proposals are set out in this consultation paper. 1.4 MAS invites interested parties to provide their views and comments on the proposed amendments in this paper. Please note that all submissions received will be published and attributed to the respective respondents unless they expressly request MAS not to do so. As such, if respondents would like: (i) their whole submission or part of it (but not their identity), or (ii) their identity along with their whole submission, to be kept confidential, please expressly state so in the submission to MAS. MAS will only publish non-anonymous submissions. In addition, MAS reserves the right not to publish any submission received where MAS considers it not in the public interest to do so, such as where the submission appears to be libellous or offensive. 1 MAS communicated this timeline to banks and MBs when we issued the revised Notice 610/1003 reporting template on 29 March 2018. Monetary Authority of Singapore 3 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 1.5 Please submit written comments by 19 June 2019 to – Prudential Policy Department Monetary Authority of Singapore 10 Shenton Way, MAS Building Singapore 079117 Fax: (65) 62203973 Email: [email protected] 1.6 Electronic submission is encouraged. We would appreciate that you use this suggested format for your submission to ease our collation efforts. Monetary Authority of Singapore 4 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 2 Consolidating Regulation of Merchant Banks under the BA 2.1 MBs are currently approved under section 28 of the MAS Act and governed by the Directives and Notices issued under the MAS Act. In addition, MBs’ ACU operations are also subject to requirements under the BA pursuant to section 77 of the BA. With the removal of the DBU-ACU divide, section 77 of the BA will be repealed. 2.2 Given that the bulk of MBs’ operations are in the ACU and currently regulated under the BA, MAS will consolidate the regulation of MBs under a new Part VIIB of the BA upon removal of the DBU-ACU divide. Existing Directives and Notices to MBs issued under section 28 of the MAS Act will accordingly be replaced by the proposed BA provisions, as well as Regulations and Notices issued under the BA. 2.3 The consolidation of MB regulation under the BA is not intended to introduce new requirements or modify existing ones, except for changes that have been previously communicated or under consultation with the MBs. 2.4 In general, the proposed requirements under the BA that apply to MBs are categorised as follows: (a) provisions in the BA that need to be substantially modified for MBs are set out entirely in the new Part VIIB; and (b) provisions in the BA that can largely be mirrored for MBs are incorporated by reference in the new Part VIIB. In addition, we propose to amend provisions in other parts of the BA (e.g. the Miscellaneous provisions in Part IX) to make or remove references to MBs as appropriate. 2.5 A summary of the relevant BA sections applicable to MBs can be found in Annex B, while the detailed legislative amendments, including the new Part VIIB for MBs, are set out in Annex C. For completeness, Annex C also includes proposed BA amendments that were previously consulted in Aug 20152 and Feb 20193. 2 http://www.mas.gov.sg/News-and-Publications/Consultation-Paper/2015/Consultation-Paper-On- Removing-the-DBU-ACU-Divide.aspx 3 http://www.mas.gov.sg/News-and-Publications/Consultation-Paper/2019/Consultation-Paper-on- Proposed-Amendments-to-the-Banking-Act.aspx http://www.mas.gov.sg/News-and-Publications/Consultation-Paper/2019/Consultation-Paper-on- Outsourcing-by-Banks-and-Merchant-Banks.aspx We are still reviewing the feedback received for the Feb 2019 consultations and will respond separately. Monetary Authority of Singapore 5 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Question 1. MAS seeks comments on the proposed BA amendments, including the new Part VIIB for MBs, set out in Annex C. 3 Licensing Merchant Banks under the BA 3.1 With the consolidation of MB regulation under the BA, MAS also proposes to move MBs from the current approval framework under the MAS Act, to a licensing regime under the BA. A licensing regime is appropriate as, like banks, MBs are subject to a formal set of prudential requirements. 3.2 Under the proposed licensing regime, regulatory requirements for MBs will continue to be calibrated to reflect the different business models and activities of MBs compared to banks. Question 2. MAS seeks comments on the proposal to move from the current approval framework to a licensing regime for MBs. Monetary Authority of Singapore 6 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Annex A LIST OF QUESTIONS Question 1. MAS seeks comments on the proposed BA amendments, including the new Part VIIB for MBs, set out in Annex C. ................................................................................. 6 Question 2. MAS seeks comments on the proposal to move from the current approval framework to a licensing regime for MBs. .......................................................................... 6 Monetary Authority of Singapore 7 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Annex B RELEVANT SECTIONS IN THE BA FOR MERCHANT BANKS New sections in Part VIIB where banking provisions are substantially modified for MBs Section 55S Licensing of merchant banks Section 55T Application for licence or variation of condition applicable to merchant banks Section 55U Revocation of merchant bank licence Section 55W Minimum capital requirements of merchant banks Section 55X New place of business and change of location of existing place of business for merchant banks Section 55Y Control of shareholdings and voting power in merchant banks Section 55Z Power of Authority to obtain information from merchant banks Section 55ZC Exposures and credit facilities of merchant banks Section 55ZD Businesses which merchant banks in Singapore may carry out Banking provisions that apply to MBs by reference in Part VIIB Section 55V Application of provisions in Part III to merchant banks (relating to licensing) Section 55ZA Application of provisions in Part IV to merchant banks (relating to balance-sheets, exposures and information) Section 55ZB Application of provisions in Part V to merchant banks (relating to prohibited business) Section 55ZE Application of provisions in Parts VI, VII and VIIA, etc. to merchant banks (relating to minimum asset requirements, funding requirements and powers of control etc.) Provisions in other parts of the BA that will be amended to make or remove references to MBs, as appropriate Section 2 Interpretation Section 4 Licensing of banks Monetary Authority of Singapore 8 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Section 4A Restriction on deposit-taking business and soliciting deposits Section 4B Application of section 4A Section 40A Interpretation of this Part Section 46A Application of section 45 to merchant banks Section 47 Privacy of customer information Relevant sections in Part IX (Miscellaneous) Monetary Authority of Singapore 9 REGULATING MERCHANT BANKS UNDER THE BANKING ACT 21 MAY 2019 Annex C PROPOSED AMENDMENTS TO THE BA THIS VERSION OF THE BANKING ACT IS IN DRAFT FORM AND IS SUBJECT TO CLEARANCE BY THE ATTORNEY GENERAL’S CHAMBERS Legend: 1) New BA amendments proposed in this consultation paper to regulate MBs under the BA are tracked in Red 2) Proposed BA amendments consulted in Feb 2019 are tracked in Orange 3) Proposed BA amendments consulted in Aug 2015 on removing the DBU-ACU divide for banks are tracked in Green Banking Act (CHAPTER 19) Table of Contents Long Title Part I PRELIMINARY